4 F.

3d 1556

Fed. Sec. L. Rep. P 97,764, Bankr. L. Rep. P 75,448

In re INVESTMENT BANKERS, INC., Debtor.
James H. TURNER, Trustee, Plaintiff-Appellee,
v.
DAVIS, GILLENWATER & LYNCH; Gilbert K. Davis,
individually
and as a partner of Davis, Gillenwater & Lynch, a
partnership, Defendants-Appellants,
and
O'Connor & Hannan, a partnership, Defendant.
Securities Investor Protection Corporation, Appellee.
No. 92-1121.

United States Court of Appeals,

Tenth Circuit.
Sept. 17, 1993.

Maria J. Flora and Adrienne H. Benavidez, Gorsuch, Kirgis, Campbell,

Walker and Grover, Denver, CO (on the brief), for appellee James H.
Turner, Trustee.
Josephine Wang, Associate Gen. Counsel, Securities Investor Protection
Corp., Washington, DC (Theodore H. Focht, Gen. Counsel, and Michael
E. Don, Deputy Gen. Counsel, with him, on the brief) for appellee
Securities Investor Protection Corp.
Robert T. Copeland of Copeland, Molinary & Bieger, Abingdon, VA
(George H. Vaught, Denver, CO, and Gilbert K. Davis, pro se, Vienna,
VA, with him, on the brief) for defendants/appellants.
Before BRORBY, Circuit Judge; BARRETT, Senior Circuit Judge, and
EBEL, Circuit Judge.
EBEL, Circuit Judge.

The appellee/trustee, James H. Turner, was appointed as the trustee for the
debtor, Investment Bankers, Inc. ("IBI"), pursuant to a liquidation proceeding
commenced under the Securities Investor Protection Act ("SIPA"), 15 U.S.C.
Sec. 78aaa et seq. The trustee subsequently commenced this action in the
bankruptcy court against the defendants/appellants, Davis, Gillenwater &
Lynch and Gilbert K. Davis, to recover payments of $11,858 and $25,000 that
IBI made to the appellants immediately prior to the commencement of the
liquidation proceeding. We conclude that the bankruptcy court and the
bankruptcy judge of that court had jurisdiction over the trustee's suit, and we
affirm the ruling that the payments to the appellants were invalid as preferential
and fraudulent transfers. Additionally, we affirm the ruling that the trustee was
entitled to pretrial interest.

FACTS
2

Prior to the SIPA liquidation proceedings, IBI was a securities broker-dealer

incorporated in the State of Colorado. On May 8, 1981, IBI became the
principal underwriter of 20 million shares of Chipola Oil Corporation
("Chipola") common stock. As a result of a sudden surge in the price of
Chipola stock, the Securities and Exchange Commission ("SEC") began to
investigate the existence of a stock manipulation scheme, and suspended
trading in Chipola stock on July 2, 1981. This suspension caused a devaluation
of the shares of Chipola stock still possessed by IBI, and prompted an inquiry
from the SEC about IBI's continued compliance with the SEC's net capital
requirements. IBI immediately sent a telegram to the SEC stating that it was
ceasing its business operations as of July 2, 1981 until its capital complied with
the SEC's net capital requirements.

On July 8, 1981, IBI asked Gilbert K. Davis, a partner in the Virginia based law
firm of Davis, Gillenwater & Lynch, to represent it and two of its directors,
Richard Belknap and William Chandler, in connection with the SEC's stock
manipulation investigation and its suspension of trading in Chipola stock. Davis
agreed to fly to Colorado to consult with IBI and its directors in exchange for a
fee of $10,000. Davis spent two days consulting in Colorado, during which
time IBI agreed to give Davis a $25,000 retainer for additional work to be
performed by Davis.

On July 10, 1981, the SEC filed suit against IBI, Belknap, and Chandler,
seeking to enjoin them from engaging in further securities transactions while
IBI was in violation of the SEC's net capital requirements. The same day, the
Securities Investment Protection Corporation ("SIPC") filed suit against IBI
under the SIPA, seeking the appointment of a trustee for the purpose of

liquidating IBI. The SIPC's complaint alleged that IBI was in danger of failing
to meet its obligations to its customers as a result of its violation of the SEC's
net capital requirements.
5

Both actions were consolidated in the District Court of Colorado, and a hearing
was held on July 10, 1981 at which IBI was represented by Davis. At the
conclusion of this hearing, the district court entered a consent order with respect
to the SEC action enjoining IBI from doing business and from disbursing funds
other than for rent, utilities, and existing employee's salaries. The district court
deferred action on the SIPC's request for the initiation of liquidation
proceedings.

Just prior to the July 10 hearing, Davis received two checks from IBI that he
immediately converted into cashiers checks. The first check, in the amount of
$11,858, covered Davis' $10,000 legal fee and $1,858 in expenses for the two
days he spent consulting in Colorado. The second check, in the amount of
$25,000, constituted payment of the retainer that IBI had negotiated with Davis
for future legal services.

On July 14, 1981, the SEC renewed its application for injunctive relief against
IBI, alleging that the debtor had issued checks in violation of the July 10
consent order. The following day, the district court approved the SIPC's
application for a protective decree and appointed the current trustee to oversee
the liquidation of IBI. Following the appointment of the trustee, the liquidation
proceeding was removed to the bankruptcy court. With the commencement of
the liquidation proceedings, the SEC withdrew its renewed application for
injunctive relief against IBI.

On September 1, 1981, Davis filed a written claim with the trustee against IBI's
estate for a cash credit balance and some securities. The trustee issued no
determination of the claim. Rather, on January 19, 1982, the trustee
commenced the instant suit against Davis and Lynch in the bankruptcy court
seeking the return of the $36,858 that IBI paid to Davis on July 10, 1981. The
trustee claimed that the payment of $11,858 was voidable as a preference under
11 U.S.C. Sec. 5471 and that the payment of $25,000 was voidable as a
fraudulent transfer under 11 U.S.C. Sec. 548.2 The appellants filed two
counterclaims seeking reimbursement for a hotel bill in the amount of $469.95
incurred by Davis while consulting with IBI in Denver and for legal fees in the
amount of $13,819.32 for services rendered to IBI, Belknap and Chandler.

The trustee's claim proceeded to trial on August 7, 1984, and concluded on July

19, 1985 after several lengthy continuances. The bankruptcy court rejected the
argument that Article III prevented it from hearing actions seeking recovery of
preferences and fraudulent conveyances and it also rejected the argument that
the bankruptcy judge was appointed in violation of Article II. However, the
bankruptcy court did conclude that it lacked statutory jurisdiction to entertain
suits brought under the aegis of the SIPA. Notwithstanding its conclusion that it
lacked jurisdiction, the bankruptcy court proceeded to the merits of the trustee's
claim and held that the $11,858 payment to Davis constituted a preference
under 11 U.S.C. Sec. 547 and the $25,000 payment to Davis constituted a
fraudulent transfer under 11 U.S.C. Sec. 548.
10

The trustee appealed the bankruptcy court's decision to the district court. In its
order of October 5, 1989, the district court reversed the bankruptcy court's
determination that it lacked jurisdiction and affirmed its determination that the
two payments to Davis were voidable under 11 U.S.C. Secs. 547 and 548. The
trustee subsequently moved the court to amend its order for an award of
prejudgment interest, and in an order dated May 15, 1990 the court referred this
question to the bankruptcy court, 136 B.R. 1008. The bankruptcy court
subsequently determined that the trustee was entitled to prejudgment interest,
135 B.R. 659. The appellants appealed this decision to the district court which
affirmed the bankruptcy court's determination on March 31, 1992. The
appellants subsequently filed the current appeal.

DISCUSSION
11

The appellants present the following claims on appeal: 1) the bankruptcy court
lacked jurisdiction under Article III to hear actions to recover preferences and
fraudulent transfers, 2) the bankruptcy judge lacked authority to preside over
the trustee's suit because he was appointed in violation of Article II, 3) the
bankruptcy court lacked statutory jurisdiction to hear cases under the SIPA, 4)
the bankruptcy court erred in finding that the $11,858 and $25,000 payments by
IBI to the appellants were invalid as preferential and fraudulent transfers
respectively under 11 U.S.C. Secs. 547 and 548, and, 5) the bankruptcy court
erred in awarding prejudgment interest to the trustee.

12

When reviewing challenges to the decisions of the bankruptcy courts, we apply

the same standard of review as the district court. Fidelity Sav. & Inv. Co. v.
New Hope Baptist, 880 F.2d 1172, 1174 (10th Cir.1989). Accordingly, the
bankruptcy court's findings of fact are reviewed under a clearly erroneous
standard while the court's conclusions of law are subject to de novo review. Id.;
Bartmann v. Maverick Tube Corp., 853 F.2d 1540, 1543 (10th Cir.1988).

I. The Jurisdiction of the Bankruptcy Court Under Article

13
III
14

Title 15 United States Code Sec. 78fff(b) states that a liquidation proceeding
under the SIPA is to be conducted "in accordance with, and as though it were
being conducted under ... Title 11." Title 28 U.S.C. Sec. 157(b)(1) states that
bankruptcy courts "may hear and determine ... all core proceedings arising
under title 11." Section 157(b)(2) defines a core proceeding to include
"proceedings to determine, avoid or recover preferences" and "proceedings to
determine, avoid, or recover fraudulent conveyances." Pursuant to these
provisions, the trustee brought suit against the appellants in the bankruptcy
court seeking to avoid IBI's payment of attorney's fees to the appellants as
preferential and fraudulent transfers. The appellants argue that the bankruptcy
court lacked jurisdiction under Article III to hear the trustee's suit because the
trustee's claims involved private rights that may only be adjudicated by Article
III tribunals.3

15

In Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 106 S.Ct.
3245, 92 L.Ed.2d 675 (1986), the Supreme Court defined a balancing test for
determining whether a particular jurisdictional grant to a non-Article III court
was constitutional. The Court stated that the critical question is whether the
jurisdictional grant "impermissibly threatens the institutional integrity of the
Judicial Branch," taking into account "the extent to which the 'essential
attributes of judicial power' are reserved to Article III courts, and, conversely,
the extent to which the non-Article III forum exercises the range of jurisdiction
and powers normally vested only in Article III courts, the origins and
importance of the right to be adjudicated, and the concerns that drove Congress
to depart from the requirements of Article III." 478 U.S. at 851, 106 S.Ct. at
3257.

16

In Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 54, 109 S.Ct. 2782, 2797,
106 L.Ed.2d 26 (1989), the Court stated, "[t]he Crucial question, [determining
whether Congress may commit adjudication of a statutory cause of action to a
non-Article III tribunal] in cases not involving the Federal Government, is
whether 'Congress, acting for a valid legislative purpose pursuant to its
constitutional powers under Article I, [has] create[d] a seemingly 'private' right
that is so closely integrated into a public regulatory scheme as to be a matter
appropriate for agency regulation with limited involvement by the Article III
judiciary.' " (quoting Thomas v. Union Carbide Agri. Prod. Co., 473 U.S. 568,
593-4, 105 S.Ct. 3325, 3339-40, 87 L.Ed.2d 409 (1985)).

17

Applying the Schor test to the instant case, we conclude that the bankruptcy
court's determination of the trustee's preference and fraudulent conveyance
claims did not violate Article III. First, proceedings involving preferential and
fraudulent transfers are "proceeding[s] of the type traditionally adjudicated by
non-article III bankruptcy courts," In re Comm. of Unsecured Creditors of F S
Communications Corp., 760 F.2d 1194, 1199 (11th Cir.1985), at least where, as
here, the party receiving the alleged preference or fraudulent conveyance has
filed a claim against the debtor's estate. See Katchen v. Landy, 382 U.S. 323,
333-35, 86 S.Ct. 467, 475-76, 15 L.Ed.2d 391 (1966). Second, the right of a
bankruptcy trustee to void preferences and fraudulent transfers is a
congressionally created right pursuant to Congress' authority under Article I
Section 8 of the Constitution to provide for uniform bankruptcy laws. In the
Matter of Associated Grocers of Nebraska Cooperative, Inc., 62 B.R. 439, 445
(D.Neb.1986). In Northern Pipeline Const. Co. v. Marathon Pipe Line, the
Supreme Court distinguished between state-created rights and rights of
congressional origin, holding that Congress had much greater discretion to
assign the latter to non-Article III courts. See 458 U.S. 50, 83-84, 102 S.Ct.
2858, 2877-78, 73 L.Ed.2d 598 (1982); In re Mankin, 823 F.2d 1296, 1308-09
(9th Cir.1987). Finally, since the assets of the bankruptcy estate are mustered in
the bankruptcy court, a strong reason exists for enabling the bankruptcy court
to preside over trustee actions designed to augment the estate. See In re Great
Am. Mfg. and Sales, Inc., 129 B.R. 633, 636 (C.D.Cal.1991). Absent such
authority, the bankruptcy proceedings would have to be stayed until the
preference and fraudulent conveyance actions could be adjudicated in the
district court, "with all the delay and expense that course would entail."
Katchen, 382 U.S. at 339, 86 S.Ct. at 478.

18

Our conclusion that the bankruptcy court had authority over the trustee's suit is
consistent with our prior decision in John E. Burns Drilling Co. v. Central Bank
of Denver, 739 F.2d 1489, 1494 (10th Cir.1984), where we concluded that the
bankruptcy courts had authority under Article III to hear proceedings involving
preferences. Although we decided this case prior to Schor, we stressed that
such proceedings were very different from the type of proceedings that
Northern Pipeline held must be adjudicated by an Article III court. Id. Other
courts have similarly concluded that the bankruptcy courts have authority to
preside over preferential and fraudulent transfer proceedings. See, e.g., In re
Mankin, 823 F.2d 1296, 1301-1310 (9th Cir.1987); In the Matter of Associated
Grocers, 62 B.R. at 442-47; cf. In re Davis, 899 F.2d 1136, 1140 n. 9 (11th
Cir.1990) (suggesting that the bankruptcy courts may have authority to preside
over fraudulent conveyance and preference actions under Article III only where
the alleged recipient of the fraudulent conveyance or preference has filed a
claim against the debtor's estate). Accordingly, notwithstanding the fact that

preferential and fraudulent transfer proceedings may involve private rights, we

hold that the bankruptcy court had jurisdiction under Article III to adjudicate
the trustee's suit.
II. The Constitutionality of the Bankruptcy Judge's
19
Appointment
20

In 1978, Congress overhauled the bankruptcy courts by replacing the old

referee system with a new Article I bankruptcy court of substantially expanded
jurisdiction. The 1978 Act provided that bankruptcy judges would be appointed
to 14-year terms by the nomination of the President and the consent of the
Senate. The Act established a 4-and- 1/2-year transition period, to end on
March 31, 1984, during which time the existing bankruptcy courts were to be
continued. Section 404(b) of the 1978 Act extended the term of bankruptcy
judges serving prior to the Act until the end of the transition period or when
their "successors take office." Pub.L. No. 95-598, 92 Stat. 2683-84 (1978).4

21

As noted previously, the Supreme Court in Northern Pipeline struck down the
jurisdictional grant of authority provided to the bankruptcy courts by the 1978
Bankruptcy Reform Act. In response, Congress adopted the Bankruptcy
Amendments and Federal Judgeship Act ("BAFJA") on July 10, 1984. Prior to
the adoption of BAFJA, Congress extended the transition period established by
the 1978 Act until June 27, 1984. BAFJA granted the bankruptcy courts
jurisdiction over all core bankruptcy matters and established the courts as
adjuncts to the district court for all non-core bankruptcy matters. Section 121(e)
provided that "[t]he term of office of any bankruptcy judge who was serving on
June 27, 1984, is extended to and shall expire at the end of the day of
enactment of this Act." P.L. No. 98-353, 98 Stat. 346 (1984). Section 106(a)
provided that "the term of office of a bankruptcy judge who is serving on the
date of enactment of this Act is extended to and expires four years after the date
such bankruptcy judge was last appointed to such office or on October 1, 1986,
whichever is later." P.L. No. 98-353, 98 Stat. 342 (1984).

22

The appellant argues that Sec. 106(a) constituted an appointment of bankruptcy

judges in violation of Article II.5 According to the appellant, the terms of the
bankruptcy judges serving during the transition period elapsed on June 27,
1984. Thus, when BAFJA was adopted on July 10, 1984, these positions were
all vacant. By continuing the judges in office under the authority of Sec. 106(a),
appellant argues, BAFJA in essence resulted in a unilateral congressional
appointment of these judges that bypassed Article II's requirement of
presidential nomination.

23

The appellants' argument has been rejected by every court that has considered
it. See e.g., In re Lombard-Wall Inc., 48 B.R. 986, 993 (S.D.N.Y.1985); In re
Moody, 46 B.R. 231, 233 (M.D.N.C.1985); In re Tom Carter Enters., Inc., 44
B.R. 605, 606-07 (C.D.Cal.1984); In re Benny, 44 B.R. 581 (N.D.Cal.1984),
dismissed in part on other grounds, 791 F.2d 712 (9th Cir.1986); In re
Sweetwater, 55 B.R. 724, 726-28 (D.Utah 1985) aff'd on other grounds and
rev'd on other grounds, 884 F.2d 1323 (10th Cir.1989); In re Southern Indus.,
66 B.R. 349, 357-59 (Bankr.E.D.Tenn.); In the Matter of Baldwin-United
Corp., 48 B.R. 49, 53 (Bankr.S.D.Ohio, 1985). The seminal case in this regard
is In re Benny. In that case, the court based its conclusion that Sec. 106(a) of
BAFJA did not result in an unconstitutional appointment of bankruptcy judges
on both Sec. 404(b) of the 1978 Act and Sec. 121(e) of BAFJA.

24

Section 404(b) of the 1978 Act, the Benny court argued, contained a holdover
provision which expressly authorized the bankruptcy judges to serve beyond
the expiration of the transition period. This holdover provision, according to the
court, consisted of the second part of the disjunctive contained in Sec. 404(b)
that provided that the bankruptcy judges were to serve until their successors
were appointed. In light of this holdover provision, the Benny court concluded,
the bankruptcy judges were still lawful office holders at the time BAFJA was
adopted, notwithstanding the expiration of the transition period on June 27,
1984. Thus, rather than constituting an unlawful appointment of these judges,
Sec. 106(a) merely served to extend the terms of the existing bankruptcy
judges, similar to Sec. 404(b) of the 1978 Act. See id. at 586-88.6

25

Alternatively, the court in Benny held that Sec. 106(a) of BAFJA did not result
in an unconstitutional appointment of judges in light of Sec. 121(e) of the same
act. The court concluded that Sec. 121(e) constituted a holdover provision
which extended the terms of the bankruptcy judges until the adoption of
BAFJA. See 44 B.R. at 588-92. The court dismissed the contention that Sec.
121(e) was invalid because it was adopted after the transition period had
expired. Retroactive legislation in and of itself, the court argued, was not
antithetical to the strictures of the appointments clause. Rather, the critical
inquiry was whether the legislation impermissibly intruded on the inherent
authority of the executive branch. The court concluded that Sec. 121(e) did not
impermissibly intrude on the president's appointment power and therefore
affected a valid retroactive extension of the bankruptcy judge's terms of office.
Id. at 592-98; see also In re Tom Carter, 44 B.R. at 608 ("[Section 121(e)'s]
retroactive extension of office of bankruptcy judge can in no principled way be
said to encroach upon the separation of powers principles embodied in said
Appointments Clause").

26

Although plausible arguments can be raised in response to the reasoning

adopted by the Benny court, we are ultimately persuaded that this reasoning is
correct. Accordingly, for substantially the same reasons advanced in Benny, we
reject the appellants' claim in the instant case that the bankruptcy judge was
without authority to hear the trustee's suit because he was appointed in
violation of Article II.

III. The Jurisdiction of the Bankruptcy Court Under the SIPA

27
28

The appellants' final jurisdictional claim is that the bankruptcy court lacked
statutory jurisdiction to try cases brought under the SIPA. The bankruptcy court
agreed that it lacked jurisdiction but the district court reversed on appeal. We
find that the bankruptcy court possessed statutory jurisdiction over the trustee's
suit on the basis of Sec. 78eee(b)(4) of the SIPA.

29

Section 78eee(b)(4) is entitled "Removal to bankruptcy court" and provides that

"[u]pon the issuance of a protective decree ... the [district] court shall forthwith
order the removal of [a SIPA] liquidation proceeding to the court of the United
States in the same judicial district having jurisdiction over cases under Title
11." 7 The appellants argue that this section does not confer jurisdiction on the
bankruptcy courts because under 28 U.S.C. Sec. 1334(a), adopted as part of
BAFJA in response to Northern Pipeline, it is the district courts and not the
bankruptcy courts that currently have jurisdiction over title 11 cases.8 Thus, the
appellants conclude, Sec. 78eee(b)(4)'s statement that the district court is to
remove a SIPA proceeding to the court having jurisdiction over title 11 cases
cannot be read as authorizing removal of SIPA proceedings to the bankruptcy
courts.

30

We reject this reading of Sec. 78eee(b)(4) because it would lead to an absurd

result clearly at odds with the intention of Congress. See United States ex rel.
Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir.1992) ("
[U]nless the statutory language is ambiguous or would lead to absurd results,
the plain meaning of the statute must control."); Resolution Trust Corp. v.
Westgate Partners, Ltd., 937 F.2d 526, 529-30 (10th Cir.1991) (a court is to
apply the plain language of a statute unless "a plain language interpretation
would lead to an outcome so 'absurd' that Congress clearly could not have
intended such an outcome"). The SIPA specifies that it is the district courts that
have exclusive jurisdiction over liquidation proceedings commenced by the
SIPC. See 15 U.S.C. Sec. 78aa. Thus, to interpret the recipient of the removal
action referred to in Sec. 78eee(b)(4) as also being a district court would lead to
a twofold absurdity: from a functional standpoint, it would require the district
courts to remove SIPA liquidation proceedings to themselves, and from a

linguistic standpoint, it would render meaningless Sec. 78eee(b)(4)'s reference

to "the court in the same judicial district," because there is only one district
court in each district.
31

Generally, in determining how to avoid an absurdity generated by the plain

language of a statute, a court is to look to congressional intent. See United
States v. Ron Pair Enters., Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 1030, 103
L.Ed.2d 290 (1989); Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571,
102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982). In the instant case, we conclude,
based on the legislative history of Sec. 78eee(b)(4) and the language of Sec.
78fff(b), that Congress intended Sec. 78eee(b)(4) to authorize the removal of
SIPA liquidation proceedings to the bankruptcy courts.

32

The legislative history of Sec. 78eee(b)(4) clearly reveals that Congress

intended to confer jurisdiction on the bankruptcy courts to preside over SIPA
liquidation proceedings. The precursor to the current version of Sec. 78eee(b)
(4) specifically provided that the district court "may, at any stage of the [SIPA]
proceeding, refer the proceeding to a referee in bankruptcy to hear and
determine any or all matters." Sec. 7(b)(4), Pub.L. No. 95-283, 92 Stat. 257
(1978) (amended 1979). In 1979, this provision was subsequently altered to its
current form to conform it to the terminology employed by the 1978
Bankruptcy Reform Act, which expanded the jurisdiction of the bankruptcy
courts to all cases arising under title 11. See S.Rep. No. 989, 95th Cong., 2d
Sess., at 18 (1978), reprinted in, 1978 U.S.C.C.A.N. 5787, 5804. Accordingly,
it is likely that the drafters of the current version of Sec. 78eee(b)(4) intended
the bankruptcy courts to preside over SIPA liquidation proceedings, and that
this intention has become obscured only because of the mere quirk that
Congress neglected to amend Sec. 78eee(b)(4) following the Supreme Court's
decision in Northern Pipeline in which it struck down the Bankruptcy Reform
Act.9

33

Our conclusion that Congress intended the bankruptcy courts to preside over
SIPA proceedings is supported by the language of 15 U.S.C. Sec. 78fff(b),
which provides that "a liquidation proceeding shall be conducted in accordance
with, and as though it were being conducted under chapters 1, 3, and 5 and
subchapters I and II of chapter 7 of title 11." This provision indicates that
Congress intended SIPA liquidation proceedings to be treated, in most
important respects, identical to a traditional bankruptcy case under title 11. See
In re Government Securities, Corp., 972 F.2d 328, 330-31 (11th Cir.1992). It is
of course beyond peradventure that one of the fundamental characteristics of a
traditional bankruptcy case under title 11 is that it is conducted by a bankruptcy
court. See 28 U.S.C. Sec. 157(a) (conferring jurisdiction on bankruptcy judges

to hear "all cases under title 11 and all core proceedings arising under title 11").
It would be truly anomalistic, therefore, for Congress to adopt Sec. 78fff(b)
while simultaneously refusing to confer jurisdiction on the bankruptcy courts
over SIPA proceedings. Accordingly, we conclude that Congress did intend to
confer such jurisdiction on the bankruptcy courts by means of Sec. 78eee(b)
(4).10
IV. The Voidability of the $11,858 and $25,000 Payments
34
35

Although the bankruptcy court concluded that it did not have jurisdiction, the
court nevertheless went on to consider the merits of the trustee's suit. It
concluded that the $11,858 payment by IBI to the appellants was invalid as a
preferential transfer under 11 U.S.C. Sec. 547, and that the $25,000 payment
was invalid as a fraudulent transfer under 11 U.S.C. Sec. 548. On appeal, the
appellants claim that the $11,858 payment fell within the "ordinary course of
business" and "contemporaneous exchange for value" exceptions to Sec. 547,
and that the $25,000 payment did not constitute a fraudulent conveyance
because IBI received equivalent value in exchange for this payment. The
bankruptcy court dismissed both of these claims, in part, on the grounds that
the appellants failed to comply with the disclosure requirements imposed by 11
U.S.C. Sec. 329(a). We affirm.

36

Section 329 is a disclosure provision designed to prevent bankruptcy attorneys

from extracting more than their fair share from prospective debtors willing to
do whatever is necessary to obtain their counsel of choice and avoid
unfavorable bankruptcy proceedings. In re NBI, Inc., 129 B.R. 212, 222
(Bankr.D.Colo.1991). Section 329(a) provides:

37 attorney representing a debtor in a case under this title, or in connection with

Any
such a case, whether or not such attorney applies for compensation under this title,
shall file with the court a statement of the compensation paid or agreed to be paid, if
such payment or agreement was made after one year before the date of the filing of
the petition, for services rendered or to be rendered in contemplation of or in
connection with the case by such attorney, and the source of such compensation.
38

11 U.S.C. Sec. 329(a). As the foregoing language indicates, the disclosure

requirements imposed by Sec. 329 are "mandatory not permissive." In re
Bennett, 133 B.R. 374, 378 (Bankr.N.D.Tex.1991). Accordingly, an attorney
who fails to comply with the requirements of Sec. 329 forfeits any right to
receive compensation for services rendered on behalf of the debtor, id. at 379;
In re Chapel Gate Apartments, Ltd., 64 B.R. 569, 575 (Bankr.N.D.Tex.1986),
and a court may order an attorney sua sponte to disgorge funds already paid to

the attorney, In re Saturley, 131 B.R. 509, 522 (Bankr.D.Me.1991); In re

Kendavis Indus. Int'l, Inc., 91 B.R. 742, 759 (Bankr.N.D.Tex.1988); In the
Matter of Chambers, 76 B.R. 194, 195 (Bankr.M.D.Fla.1987); In re Chapel
Gate, 64 B.R. at 574, 575.
39

In the instant case, the district court found that the appellants violated Sec. 329
by failing to disclose their receipt of both the $11,858 payment and the $25,000
payment. We cannot conclude that this finding was clearly erroneous.11 Davis
testified at trial that he was representing IBI, that he received both of the
foregoing payments for such representation, and that the payments were made
on the same day that the SIPC filed for liquidation. Furthermore, Davis testified
that his initial consultation with IBI, for which he received the $11,858
payment, was in contemplation of a SIPA liquidation proceeding, and that the
invoice given by Davis to IBI in exchange for the $25,000 retainer explicitly
states that the $25,000 retainer was being given in connection with any
"matters ... involv[ing] ... SIPC", Addendum to Appellees' Br. at 23.
Accordingly, we believe the record adequately supports the bankruptcy court's
conclusion that the appellants violated Sec. 329 by failing to disclose the
payments it received from IBI.

40

Once the bankruptcy court determined that the appellants violated Sec. 329, the
bankruptcy court had the authority to order the appellants to disgorge the two
payments they received from IBI. See In re Saturley, 131 B.R. at 522; In re
Kendavis Indus. Int'l, Inc., 91 B.R. at 759; In the Matter of Chambers, 76 B.R.
at 195; In re Chapel Gate, 64 B.R. at 575. The appellants do not dispute that the
district court could have ordered the return of the payments directly under Sec.
329, but argue that it was error for the court to rely on Sec. 329 in determining
whether the payments were invalid under Secs. 547 and 548. We disagree. By
violating Sec. 329, the appellants forfeited any right to the fees they received
from IBI. In re Bennett, 133 B.R. at 379; In re Chapel Gate, 64 B.R. at 575.
Although the bankruptcy court could have ordered the appellants to disgorge
the payments it received from IBI directly under Sec. 329, we do not believe
the bankruptcy court abused its authority in reaching the same result by using
Sec. 329 as a basis for approving the trustee's claims under Secs. 547 and 548.

V. Prejudgment Interest
41

The appellants final claim is that the bankruptcy court erred in awarding
prejudgment interest to the trustee. We review a bankruptcy court's award of
prejudgment interest for abuse of discretion. See In re Bellanca Aircraft Corp.,
850 F.2d 1275, 1281 (8th Cir.1988).

42

The current bankruptcy code does not specify whether the bankruptcy court
may award prejudgment interest to a prevailing trustee. In re Indep. Clearing
House Co., 41 B.R. 985, 1014 (Bankr.D.Utah 1984) aff'd and rev'd on other
grounds, en banc, 77 B.R. 843 (D.Utah 1987). In the absence of a statutory
provision to the contrary, prejudgment interest may generally be awarded if 1)
the award of prejudgment interest would serve to compensate the injured party,
and 2) the award of prejudgment interest is otherwise equitable. Anixter v.
Home-Stake Production Co., 977 F.2d 1549, 1554 (10th Cir.1992); FDIC v.
Rocket Oil Co., 865 F.2d 1158, 1160 (10th Cir.1989). In bankruptcy
proceedings, the courts have traditionally awarded prejudgment interest to a
trustee who successfully avoids a preferential or fraudulent transfer from the
time demand is made or an adversary proceeding is instituted unless the
amount of the contested payment was undetermined prior to the bankruptcy
court's judgment. See In re Bellanca Aircraft Corp., 850 F.2d at 1281; In re
Indep. Clearing House Co., 41 B.R. at 1015.

43

In the instant case, the award of prejudgment interest to the trustee would
unquestionably serve a compensatory purpose. An award of prejudgment
interest would serve to compensate the debtor's estate for appellants' use of
those funds that were wrongfully withheld from the debtor's estate during the
pendency of the current suit. See In re Chase & Sanborn Corp., 127 B.R. 903,
907-10 (Bankr.S.D.Fla.1991); In re Suburban Motor Freight, Inc., 124 B.R.
984, 1005-06 (Bankr.S.D.Ohio 1990); In re H.P. King Co., 64 B.R. 487, 488-89
(Bankr.E.D.N.C.1986). Additionally, an award of prejudgment interest would
appear to be consistent with the balance of equities.

44

Finally, there is no dispute that the amount of the contested payment was
clearly determined prior to the bankruptcy courts judgment. The trustee has
consistently maintained throughout the course of this action that the full amount
of each of the two payments made to the appellants by IBI on July 10 were
voidable under Secs. 547 and 548. Accordingly, we conclude that the district
court did not abuse its discretion in awarding the trustee prejudgment interest.

45

AFFIRMED.

11 U.S.C. Sec. 547 provides in relevant part:

(b) Except as provided in subsection (c) of this section, the trustee may avoid
any transfer of an interest of the debtor in property--

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such
transfer was made;
(3) made while the debtor was insolvent;
(4) made-(A) on or within 90 days before the date of the filing of the petition;
(5) that enables such creditor to receive more than such creditor would receive
if-(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the
provisions of this title.
2

11 U.S.C. Sec. 548 provides in relevant part:

(a) The trustee may avoid any transfer of an interest of the debtor in property,
or any obligation incurred by the debtor, that was made or incurred on or within
one year before the date of the filing of the petition, if the debtor voluntarily or
involuntarily-(1) made such transfer or incurred such obligation with actual intent to hinder,
delay, or defraud any entity to which the debtor was or became, on or after the
date that such transfer was made or such obligation was incurred, indebted; or
(2)(A) received less than a reasonably equivalent value in exchange for such
transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation
was incurred, or became insolvent as a result of such transfer or obligation;
(ii) was engaged in business or a transaction, or was about to engage in business
or a transaction, for which any property remaining with the debtor was an
unreasonably small capital; or
(iii) intended to incur, or believed that the debtor would incur, debts that would
go beyond the debtor's ability to pay as such debts matured.

Bankruptcy courts are non-Article III tribunals. See Granfinanciera, S.A. v.

Nordberg, 492 U.S. 33, 50, 109 S.Ct. 2782, 2794, 106 L.Ed.2d 26 (1989)

Section 404(b) provides in relevant part:

The term of a referee in bankruptcy who is serving on the date of enactment of
this Act is extended to and expires on March 31, 1984 or when his successor
takes office.

The appointments clause states that the president "shall nominate, and by and
with the Advice and Consent of the Senate, shall appoint Ambassadors, other
public Ministers and Consuls, Judges of the supreme Court, and all other
Officers of the United States, whose Appointments are not herein otherwise
provided for, and which shall be established by Law." U.S. Const. Art. II, Sec.
2, cl. 2

The appellants do not dispute that Congress may, consistent with Article II,
unilaterally extend the terms of United States officers who have previously
been appointed to their posts in accordance with Article II. See In re Tom
Carter, 44 B.R. at 607 ("[T]he Supreme Court has consistently rejected
Appointments Clause attacks on legislation changing the terms and duties of
office.")

Section 78eee(b)(4) provides in full:

Upon the issuance of a protective decree and appointment of a trustee, or a
trustee and counsel, under this section, the court shall forthwith order the
removal of the entire liquidation proceeding to the court of the United States in
the same judicial district having jurisdiction over cases under Title 11. The
latter court shall thereupon have all of the jurisdiction, powers, and duties
conferred by this chapter upon the court to which application for the issuance of
the protective decree was made.

28 U.S.C. Sec. 1334(a) provides that "the district court shall have original and
exclusive jurisdiction of all cases under title 11."

That Congress' failure to amend Sec. 78eee(b)(4) is indeed the product of mere
oversight rather than deliberate inaction is evidenced by the very title to Sec.
78eee(b)(4), which, as noted above, still reads "Removal to bankruptcy court."

10

The appellants suggest in one statement of their brief that if the bankruptcy
court has statutory jurisdiction over SIPA proceedings, this jurisdiction is
unconstitutional under Article III. However, since the only proceedings at issue
in the instant case are proceedings to avoid a preference and a fraudulent

transfer, these are the only proceedings we need to consider. See Northern
Pipeline, 458 U.S. at 90, 102 S.Ct. at 2881 ("[p]articularly in the area of
constitutional law such as that of Art. III Courts, ... the Court should decide no
more of a constitutional question than is absolutely necessary") (Rehnquist, J.,
concurring). As we concluded above, the bankruptcy court's authority to hear
actions involving preferences and fraudulent transfers does not contravene the
strictures of Article III
11

The appellants do not dispute that Sec. 329 is applicable to SIPA liquidation
proceedings by virtue of 15 U.S.C. Sec. 78fff(b), which, as noted above, states
that such proceedings are to be conducted "in accordance with, and as though it
were being conducted under chapters 1, 3, and 5 and subchapters I and II of
chapter 7 of title 11."